Pontius Pilate Races Out Of Detroit

"Ecce Auto" (Behold the car). With that back of the hand brush off, the 110th US Congress just left the future of the American auto companies to be worked out next year by a new legislature and administration. The sitting politicians have spent weeks examining the troubles of The Big Three. They would argue that they do not have enough time to appreciate the subtleties of how the car industry works. That is certainly true, but Congress probably acts on matters which it does not even vaguely understand in nine-tenths of its votes. Rescuing Detroit has brought out the cowardliness of most members. After all, they do not want to be accused of rescuing profligate capitalists in the world’s largest capitalist economy.

It is hard to imagine that the next Congress will have enough time to understand the problems of the auto industry before it has to act on whether to save the companies or let them fail. The money that the outgoing group is planning to send to Detroit to tide it over until next year is estimated to be about $15 billion. Moody’s Economy.com’s chief economist told the US Senate Committee on Banking, Housing and Urban Affairs that the total expense of saving the domestic auto industry would be as high as $125 billion. At the same time one of the leading firms which tracks the car industry, the Center for Automotive Research, said that, between the recession and necessary plant retooling, the domestic companies will not be healthy again before 2015.

The most important thing that the federal government can do now is to force a direction for The Big Three. Each day that passes without those actions is a day closer to when suppliers bull-rush the courts to force a liquidation in the hope of getting something as the pieces are auctioned off. It is a long bet but one that desperate firms that think they may receive nothing at all in a Chapter 11 may try. A 1% chance of being reimbursed is better than none for these companies holding IOUs.  This unfortunately is the race that Congress is up against.

The other option, which would involve even more guts, is to flatly turn the car companies down. That would leave them to work out their problems in the bankruptcy system. At least they would not be strung along for weeks at a time, like they are now, burning money that they could use as a part of  a work-out process. If the CFOs at GM and Chrysler were in charge, they would probably take their companies into Chapter 11 now while they still have some cash on their balance sheets.

What Congress has effectively done, by doing nothing, is leave a problem which must be resolved now until a time which is too long from now. The CEOs of Detroit have added to the problem by not drawing a line in the sand. Help us by this date, or we take the ugly way out.

Neither side has the courage to say at least we did not wait until it was too late.

Douglas A. McIntyre